Fidelity Labs Takes Innovation to the Next Level

Fidelity Labs is running a pilot on LinkedIn that lets financial advisers interact with their book of customers. That's just one example of how the tech incubator is seeding ideas and developing future products for its parent company.

As someone who keeps an eye on emerging technologies that could apply to financial services, Hadley Stern, VP of Fidelity Labs, believes that pervasive video is going to become an important way that investors meet with their financial advisors.

While many technology companies have innovation labs, Fidelity Investments is probably the only firm in financial services to establish a unit that researches and experiments with early-stage technologies. But the future is not always clear and in many ways, that's the premise behind Fidelity Labs.

The 80-person unit, headquartered in Boston, with offices in North Carolina, Ireland, and China, was founded in 1988 by Ned Johnson, Fidelity's chairman, who felt it was important to look outside but realized that CIOs were focused on their day-to-day responsibilities. To get that "outside view," Fidelity Labs has partnerships with M.I.T. and also has an association with Stanford University's D School to apply the practices of Design Thinking.

While one would expect mobile, cloud, and big data to be at the top of any financial services firms' list of technologies, wearables, robotics, and automation, artificial intelligence, pervasive video, and gamification are on Fidelity Lab's agenda. Its charter is to look at anything that is now unclear, whether it be a technology that will come into the enterprise or customer facing, according to Stern. "We have a set of themes that we address and are constantly adjusting," said Hadley. For example, wearables are a technology that most firms may have looked at with skepticism when they first came out, said Hadley. Last year, Fidelity Labs began experimenting with Google Glass, creating a video and a product.

"We spoke to customers and showed them Google Glass and how they might use it in their day as Fidelity customers," he said. This video on YouTube shows someone logging into Google Glass to receive market news, alerts, and quotes.

If the ideas have merit, Fidelity uses a "lean startup approach" to quickly develop prototypes, and then agile development if it progresses to a pilot. It seeks input from customers and also co-develops technology with its customers. A technology consumer forum is a private community where it seeds ideas and gets feedback.

Some of the ideas move out of the lab into incubators that are running with collocated teams staffed with a product manager, designer, developer, business coach, and design thinker. Customers are coming in to give feedback throughout the process. "They're really iterating through a variety of lean experiments and if they land on something they stay with it," he said. The lab brings in people around a structured dialogue, experiment, or hypothesis.

Co-developing with customersOne hypothesis is that people would like to store documents online in a secure manner such as wills or legal papers, but they are worried about security on the cloud. This hypothesis evolved into FidSafe, a secure place (cloud-based) to store and share important documents and critical data with trusted individuals and family. Fidelity could have spent a few years building something, not talking to customers, and release it and see what happens. In this case, Fidelity brought in customers and non-customers and used the Design Thinking staff "to uncover unmet needs," said Stern. Hadley emphasized that Fidelity Labs works with a lot of other groups. "We're not allowed to do our stuff on our own," he said, adding that the lab is very connected other business and technology groups inside Fidelity.

"With Fidsafe, the vision is that we are incubating so that one day it will go back to a core product." The lab is already working with tech teams and business teams to validate the idea.

In terms of the trends that the lab is looking at, many are in research, some are in beta pilot, and some are at scale, he said.

At the conference, Stern elaborated on some other trends that Fidelity Labs is watching:

Gamification is seen as a way to make training and compliance more engaging for employees. For the past 12 to 18 months, it's looking at ways 'to game 'its interfaces to make it more interesting for customers, said Stern. As the largest provider of 401k's in the US, one challenge is that investors ten to set it and forget it, or not set it at all. With new hires, it's going to use gamification to present them with a Leaderboard, which compares the person to how others are doing in the 401k process. "A lot of the gamification techniques are not about playing a game. It's simply about letting you know where you are and where you have to go," said Stern. Beat the Benchmark is a game in beta that was developed to teach the basics of investing without reading a dry textbook.

On the social media front, Stern said he's beginning to see small social media networks being created for use by financial advisors. Since LinkedIn is the defacto social network for professionals, "We're running a pilot on LinkedIn where advisors can connect with their book of customers, say 500 via their LinkedIn profile," he said. "The social piece is moving from an internal corporate network to a broad customer base to many-to-many customer service representatives engaging with customers," he told conference attendees.

More on the edge, Fidelity is keeping an eye on video and robotics, noting that some companies are using iRobot for combining physical and virtual presence to meet with customers. Rather than having a meeting via phone, they can be represented in a conference room.

Crypto currencies are also on its radar screen. Fidelity Labs is watching what's happening with Bitcoin. With established companies like Paypal beginning to offer Bitcoin-like services to customers, but this is still a niche. "Bitcoin is to currency what open source is to technology," he said. "Bitcoin is an open, free, standardized, and decentralized currency. This contradicts everything we know about money."

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The tech incubator works closely with the business units and calls in customers and non-customers, so it doesn't develop in a vacuum.

It also seems like Fidelity Labs gets a competitive edge developing products that other firms don't think about it or take the chance on. Take Fidsafe, secure document storage for things like wills, birth certificates and other legal documents. That is something Fidelity is able to offer its customers. I could be wrong but I don't know of any major bank that is offering that.

Yes, by staying close to the vendors, the firms should be ahead of the game, for the most part. However, Fidelity also tries to stay a step ahead of the vendors and the business leaders. When a business leader says "we must have the latest and greatest [x] technology," Fidelity Labs can say, "OK, we can build that for you, but just so you know we tested it and here are the results of our test." If the test bombed, Fidelity Labs can help Fidelity pick its innovation spots wisely.

After I wrote that comment, I realized that Wall Street firms are in close contact with vendors about their future plans for product development. This is a more pragmatic approach than running their own R&D labs but probably works well to keep them on top of the latest advances. Financial firms can participate in pilots and beta programs in specific areas, such as low-latency trading architecture running an Hadoop cluster, etc., when it makes sense.

Although the banks have mostly cut down their own R&D IT labs, they do maintain close ties with the vendors and Silicon Valley. I've spoken to many technology leaders in the past few months who were planning visits to meet with vendors. In fact, some of the senior IT leaders spend a lot of time meeting new technology companies.

Kathy, I remember reporting in the 90s and major firms had labs and were investing in R&D. I suppose this has been cut with all the downsizing that's occurred. Are they still flying to Silicon Valley to learn about Apple's latest announcement? Are they still visting IBM in Armonk to meet with their scientists about the latest plans with Watson? I would hope so.

Really interesting to see what Fidelity Labs is doing and to imagine all the potential uses across financial services. It seems to me, though, like FIs used to do more of this, in that R&D seemed to be more standard for at least the big companies. I remember writing/reading back in the 90s about firms that were exploring new development methodologies, etc. That often was under the CTO. Now the CTO seems to be more involved in vetting existing vendors and software packages. Of course back then few could imagine what we're seeing and dreaming now about mobility, social, digital, etc. -- maybe that's the point!

It wasn't all bad luck for the capital markets this week: Hedge funds had a decent first quarter despite a slowdown in jobs numbers, BlackRock might be heading into new territory as hedge fund managers take a hard look at their counterparties, and the head of the IMF didn't pull any punches when assessing today's global economy. At least we can admire the nice weather and some of the best quotes of the week.